Australia’s Property Market (and the recent correction starting in 2017)

Running head: ECONOMICS
Australia’s Property Market (and the recent correction starting in 2017)
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ECONOMICS
Australia’s Property Market (and the recent correction starting in 2017)
Table of Contents
Introduction....................................................................................................................................2
Industry background.....................................................................................................................2
Market structure............................................................................................................................5
The industry’s associated issue..................................................................................................6
Impacts of the issue on the industry and on the Australia economy....................................7
Government policy........................................................................................................................8
Conclusion......................................................................................................................................9
References...................................................................................................................................10

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ECONOMICS
Introduction
Property market in Australia is one of the major industries of the nation. The
sector is characterized by rapidly rising prices, which created inflation and a housing
bubble in the Australian economy. The average price of the property grew by 0.5%
annually for a century, 1890 to 1990, after inflation, however, the property prices started
to rise very fast 1990 onwards due to various economic reasons, and this resulted in an
Australian property bubble. 2017 onwards, it has been observed that the housing prices
are going downwards and thus showing signs of contraction of the bubbles (Wong et al.
2018). This report consists of an overview of the Australian property market. It will
highlight and discuss the industry background, market structure of the property sector,
along with the associated issue, its impact on the industry as well as on the Australian
economy, and the corresponding government policies.
Industry background
The real estate industry of Australia is one of the biggest industries, which has a
significant impact on the economy. In the past 5 years, there was a rapid boom in the
population and also in the economy of Australia, which was reflected in the residential
property market. The industry is non-uniform as high variation in prices and demand for
housing has been observed across the major cities and in the regional areas of
Australia (Crowe et al. 2013). The Australian economy has been experiencing a positive
economic growth for more than 2 decades, although there have been fluctuations in the
rate of growth, yet, the growth was always positive. This indicates improving
employment level and rate of inflation (Chua and Robinson 2018). This has contributed
in the growth of demand for the properties in a very rapid manner. In other words, there
has been soaring prices in the housing market of Australia. This increasing price has
resulted from positive and high economic growth, lack of availability of land and higher
demand for property. However, the market has also experienced falling prices in real
estate industry in different regions due to low wage growth, lower level of production,
economic uncertainties and high unemployment ratios. The highest housing prices have
been recorded in Sydney, Melbourne, Brisbane, Hobart and Canberra and in their

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suburban areas (Phillips and Joseph 2017). The property prices in the Australian
housing market are considered as highest compared to the average annual income of
people across the world.
The key issues of this industry are affordability, increase in immigration,
increasing foreign investment in the residential property market, and negative gearing
(Wong and Wakefield 2017). The housing prices soared due to fixed supply of land and
growing demand for the housing units, and also due to positive economic growth
leading to increasing trend of immigrated population, especially in the cities. Migration
has been happening due to high level of education in the reputed universities, and
increasing job opportunities for skilled workers. Thus, the demand for rental housing is
very high in the cities. The level of foreign investment has also increased significantly in
the past decade. It provides a huge inflow of foreign capital to the Australian economy.
Furthermore, the real estate industry channelizes the revenue to the government
through different types of taxes, such as, profit taxes, property taxes etc. (Wong et al.
2016).
The government’s policy of incentives and cutting the interest rates has acted as
an igniter for the investment in this industry and credit affordability of the individuals.
This has driven the growth in the housing prices over the last few years, despite
turbulences in the economy (IBISWorld 2019). Thus, the housing industry has been a
significant contributor in the GDP. On the other hand, there is a controversial issue in
the property market of Australia, that is, negative gearing. The Australian taxpayers
were allowed to negatively gear their properties and for that, the investors invest in
properties, which do not generate more profit. This enables the investors to pay less tax
to the government (Wood 2019).